"Double-Edged Sword": Is the Secondary Copper Market Feeling the Chill? [SMM Analysis]

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         As February gradually comes to an end, the secondary copper raw material market continues to face a supply deficit. Recently, although domestic copper prices have slightly retreated, they remain in a high-level fluctuation pattern due to macroeconomic disturbances. As a result, traders generally adopt a cautious attitude, with a low willingness to sell. Additionally, the "reverse invoicing" policy has further limited the availability of secondary copper raw materials in the market, imposing significant operational pressure on secondary copper rod enterprises.

       In terms of imports, according to Ningbo import traders, although the supply of secondary copper raw materials in local warehouses is moderate, the high current import costs deter traders. Most Ningbo traders trade by pricing against LME while selling spot copper synchronized with SHFE copper. Data shows that as of February 26, the loss on imported secondary copper raw materials was 795.42 yuan/mt. Facing significant losses, most traders choose to hold back cargoes, hoping to gain more profits when the market improves in the future.

       Meanwhile, the continued weakness in downstream orders has further exacerbated the difficulties for secondary copper rod enterprises. Post-Chinese New Year, the recovery of the downstream consumer market has fallen far below expectations. Taking secondary copper rod enterprises in Hubei as an example, the average discount of secondary copper rod against copper futures in February was 413 yuan/mt, but as of February 26, the discount narrowed to only 280 yuan/mt. Some enterprises even face difficulties in selling a single truckload of goods in a day, with some having to lower prices by 50 yuan/mt below the market level to secure more shipments. As of February 26, the price spread between refined copper rods and secondary copper rods was 770 yuan/mt, far below the average advantage line, and the overall trend is narrowing. The economic benefits of secondary copper rod enterprises continue to decline, with increasing production and operational pressure.

       Moreover, the enforcement of the "reverse invoicing" policy has also caused considerable challenges for secondary copper rod enterprises. Due to varying enforcement levels across provinces, enterprises are left uncertain when facing policy adjustments. This uncertainty has made secondary copper rod enterprises more cautious in observing market dynamics, and the market situation is expected to show no significant improvement before the end of Q1.

       In summary, high import costs exacerbate the pressure on import enterprises, the supply deficit in the secondary copper raw material market persists, and weak downstream consumption leads to sales difficulties for secondary copper rod enterprises. The dual challenges of raw material shortages and downstream weakness act as a "double-edged sword," leaving the overall market outlook unclear.